The evolution of Mammoth: Company grows energy services segments

Arty Straehla is diversifying his service contracting business with billions of dollars of potential ahead of him. The Mammoth Energy Services Inc. CEO said his contracts with Puerto Rico’s electrical authority have brightened the horizon for continental-U.S.-based work.

Energy finance professor Stuart MacDonald said Mammoth faces risk by working with a bankrupt contractor, but since it’s the island’s electric utility, it’s a solid bet to make.

Straehla said Mammoth attracts stable cash flows that will improve the company’s earnings in the long run as it adds more divisions that are outside the traditional oil-field services industry. Its work in electrical utility infrastructure has expanded and it has bought a crude oil trucking company along with a company that provides cement and acid services to wells.

Straehla’s company has been repairing electrical infrastructure in Puerto Rico since it won the original contract in October and has been extended twice. In May, Mammoth won a $900 million contract to rebuild the island territory’s electrical grid. The project will take months and the number of employees required will fluctuate over time, he said. There are about 700 people working there now, down from the peak of more than 1,000.

“We still view this as long-term work for the $900 million contract,” he said Tuesday on a conference call with energy analysts. “As we make the transition to reconstruction (from restoration), we still have a long time to be on the island.”

U.S.-based investor-owned utilities provided mutual aid and contract assistance to restore power on the island. That’s been good exposure for Mammoth’s electric subsidiary, Cobra Acquisitions. Before Cobra went to Puerto Rico, it had about a $30 million backlog in utility contracts. Now Cobra has a $500 million backlog in its infrastructure business.

“We’re actually bidding on $2 billion in our pipeline right now,” Straehla said. “We’ll have a better chance to get it … in the continental U.S., and that is our goal to be a continental-U.S. player.”

Energy analysts complimented him and his staff for bringing in higher profits for the second quarter compared to the same period in 2017. But several questioned a bad debt expense listed on the company’s books. Mammoth reported $28.3 million in bad debt in the second quarter, a $2.7 million increase compared to the prior quarter.

MacDonald, who teaches at the University of Central Oklahoma’s Master of Business Administration program, said in general, bad debt expense is debt that can’t be collected and must be written off. If it’s too large, it can take down a business.

Oklahoma City University energy finance professor Debbie Fleming said in a situation like Cobra’s, the bad debt expense generally doesn’t come